By Antonio Guerrero
Meirelles: Reining in Brazil’s stimulus measures
Brazil’s central bank moved to tighten monetary policy by raising bank reserve requirements on term deposits from 13% to 15% as of April 9. The central bank had reduced reserve requirements to free up some $55 billion in liquidity and boost credit availability. Additional charges on cash and term deposits were also increased to 8% from a previous 5% and 4%, respectively, beginning in March. According to central bank president Henrique Meirelles, the increase is part of the government’s plan to reverse stimulus measures now that the country’s GDP is expected to grow by as much as 5.5% this year.
Increased bank reserve requirements should also help keep Brazil’s inflation rate in check. However, a central bank survey shows the government is likely to overshoot its official target of 4.5% for 2010. Instead, economists polled predict inflation will end the year at 4.91%. The increase may put pressure on the central bank to tighten policy further; finance minister Guido Mantega has said the central bank would consider hiking interest rates only if annual inflation tops the official target.
Automakers are benefiting from Brazil’s rebounding consumer demand. Auto output rose by 23.9% year on year in February and, according to the Anfavea national automakers association, 253,000 units were produced and 221,000 units sold in February. Sales were expected to increase to 310,000 units in March. Brazilian development bank BNDES signed a $674 million loan agreement for German automaker Mercedes-Benz to increase its local truck and bus production.
Moody’s says Brazil, which has been investment-grade-rated since 2009, could be poised for a further sovereign upgrade next year. The ratings agency says it may consider an upgrade if the new administration elected in October continues to reverse last year’s deterioration in government debt indicators. Net public sector debt fell from 42.9% of GDP in December to 41.7% in January.